A foreclosed home in Glendale. (Kevork Djansezian/Getty…)
SACRAMENTO -- Homeowners who default on refinanced mortgages won't be liable for debts that exceed the market value of their lost properties.
Late Monday, Gov. Jerry Brown signed into law legislation to close a legal loophole that could make defaulting borrowers responsible for paying back money they took out of previously more valuable homes when they refinanced their loans.
The lingering debt, said the author of the bill, Sen. Ellen M. Corbett (D-San Leandro) adds a second punishment to people who already have lost their biggest possession.
"Many Californians have suffered the heartbreak of home loss since the economy soured, and none should owe more on their homes than the market value," Corbett said. "This legislation prevents borrowers from getting caught in an unfair and little-known trap simply because they refinanced their homes."
The bill is somewhat similar to a 2010 Corbett measure that was vetoed by then-Gov. Arnold Schwarzenegger.
This year's version was modified significantly to garner support from divergent groups, including the California Bankers Assn., the California Assn. of Realtors and the Center for Responsible Lending, a consumer advocacy group.
Corbett's bill, SB 1069, passed the Senate on a bipartisan 39-0 vote and the Assembly on a 79-0 vote.
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